First Quarter Strategic Update & Financial Results MAY 10, 2018

Transcription

1 First Quarter 2018 Strategic Update & Financial Results MAY 10, 2018

2 Disclaimer Certain information in this presentation is forward-looking and related to anticipated financial performance, events and strategies. When used in this context, words such as will, anticipate, believe, plan, intend, target and expect or similar words suggest future outcomes. Forward-looking statements relate to, among other things, ECN Capital Corp. s ( ECN Capital ) objectives and strategy; future cash flows, financial condition, operating performance, financial ratios, projected asset base and capital expenditures; anticipated cash needs, capital requirements and need for and cost of additional financing; future assets; demand for services; ECN Capital s competitive position; expected growth in originations; and anticipated trends and challenges in ECN Capital s business and the markets in which it operates; and the plans, strategies and objectives of ECN Capital for the future. The forward-looking information and statements contained in this presentation reflect several material factors and expectations and assumptions of ECN Capital including, without limitation: that ECN Capital will conduct its operations in a manner consistent with its expectations and, where applicable, consistent with past practice; ECN Capital s continued ability to successfully execute on its strategic transition; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax and regulatory regimes; certain cost assumptions; the continued availability of adequate debt and/or equity financing and cash flow to fund its capital and operating requirements as needed; and the extent of its liabilities. ECN Capital believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct. By their nature, such forward-looking information and statements are subject to significant risks and uncertainties, which could cause the actual results and experience to be materially different than the anticipated results. Such risks and uncertainties include, but are not limited to, operating performance, regulatory and government decisions, competitive pressures and the ability to retain major customers, rapid technological changes, availability and cost of financing, availability of labor and management resources, the performance of partners, contractors and suppliers. Readers are cautioned not to place undue reliance on forward-looking statements as actual results could differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements. Except as required by law, ECN Capital disclaims any intention and assumes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. 2

3 Disclaimer ECN Capital s audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board and the accounting policies we adopted in accordance with IFRS. In this presentation, management has used certain terms, including adjusted operating income before tax, adjusted operating income after tax, adjusted operating income after tax EPS and managed assets, which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations. ECN Capital believes that certain non-ifrs Measures can be useful to investors because they provide a means by which investors can evaluate ECN Capital s underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business of a given period. Throughout this presentation, management used a number of terms and ratios which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations. A full description of these measures can be found in the Management Discussion & Analysis that accompanies the financial statements for the quarter ended March 31, ECN Capital s management discussion and analysis for the three-month period ended March 31, 2018 has been filed on SEDAR ( and is available under the investor section of the ECN Capital s website ( This presentation and, in particular the information in respect of ECN Capital s prospective originations, revenues, operating income, adjusted operating income, adjusted operating income EPS, and intrinsic value illustration may contain future oriented financial information ( FOFI ) within the meaning of applicable securities laws. The FOFI has been prepared by management to provide an outlook on ECN Capital s proposed activities and potential results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions, including the assumptions discussed above, and assumptions with respect to operating costs, foreign exchange rates, general and administrative expenses and expected originations growth. ECN Capital and management believe that the FOFI has been prepared on a reasonable basis, reflecting management s best estimates and judgments, however, the actual results of operations of ECN Capital and the resulting financial results may vary from the amounts set forth herein and such variations may be material. FOFI contained in this presentation was made as of the date of this presentation and ECN Capital disclaims any intention or obligation to update or revise any FOFI contained in this presentation, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. 3

4 Call Agenda STRATEGIC UPDATE OPERATING HIGHLIGHTS Business Services Home Improvement Manufactured Housing Legacy Business Rail & Aviation Finance CONSOLIDATED FINANCIAL SUMMARY QUESTIONS 4

5 STRATEGIC UPDATE 5

6 Strategic Timeline The Kessler partnership marks the completion of ECN s two year strategic transition Harvested capital through five completed sales transactions, >2% premium on book assets and >10% premium on equity Two business services acquisitions closed & KG partnership announced Acquired Service Finance for US$309 million Acquired Triad Financial Services for US$100 million Announced strategic partnership with the Kessler Group for US$221.2 million 2017 APR JUN JUL SEP OCT DEC JAN MAY 2018 Sold US C&V business for US$1.6 billion, ~17% premium to assets Sold Commercial Aviation business for US$19 million Sold noncore Rail assets for $US1.1 billion Sold Canadian C&V business for ~US$670 million Assetbased Lender Business Services Provider 6

7 Strategic Plan Asset-based Lender to Business Services Firm - COMPLETE Transition from a direct lender to a leading business services company providing lending and credit services to US financial institutions is complete Three scalable business services platforms in Service Finance, Triad and The Kessler Group 82% of 2019 revenue from fee based services to 90+ financial institutions; 78% in Q3 2017, 79% in Q Manager, advisor and servicer on $29+ billion of consumer credit assets ECN CAPITAL 2019 EST REVENUES 18.0% Legacy Business Capital Redeployment ~65% COMPLETE Orderly redeployment of remaining legacy business capital In addition to $775 million harvested to date, legacy businesses have remaining capital of $450 million Expect substantial completion of redeployment by the end of 2019 Organic growth opportunities within three core verticals Allocation of capital opportunistic acquisitions, repurchase + dividends Maintain investment grade ratings Business Services 82.0% Legacy Business 1.Management fees & Kessler annuities 7

8 Strategic Plan Right sizing capital, operations and expenses - UNDERWAY Right sizing capital and operations to business services platform Returned significant capital through SIB & NCIB (C$217 million, ~15% of shares outstanding) NCIB remains a valuable capital allocation tool Expense reduction commitment and actions continue (see slide 25) ECN committed to realizing synergies between platforms - UNDERWAY ECN resources and relationships driving additional bank relationships (see slide 9) ECN converting its bank relationships into SFC, Triad and Kessler customers Cross-selling bank relationships between platforms Back office best practices shared between businesses 8

9 Strategic Value Creation Canadian bank from ECN s senior line has joined as a Kessler risk-based marketing customer Other bank partners in discussion 1 st Canadian Account Add. Canadian Accounts 2019/2020 Revenue 2019/2020 Revenue A US bank from ECN s senior line is joining SFC as a bank partner Canadian banks from ECN s senior line in discussions with SFC as possible bank partners Triad credit union in due diligence to join SFC as a funding partner Agreement to use components of SFC s paperless back-office Launch of floorplan drives core services Top 3 Bank Top 5 Bank 1 st Credit Union Improve Efficiency Drives Retail Originations 2019/2020 Revenue & Risk Diversification 2019/2020 Revenue & Risk Diversification 2019/2020 Revenue & Risk Diversification Process Improvement Rollout Underway 9

10 Management Aligned At the end of Q1, employees and board members owned approximately 11% of the company, including shares, options and PSUs Management and insiders have been consistent buyers of shares Corporate senior leader compensation and pension arrangements are tied to performance metrics Newly acquired businesses have 5-year deferred purchase price earn-out plans with prescribed ROAE targets 4.50 INSIDER COMMON SHARE PURCHASES / / / / / / / / /2018 Share Price Insider Purchase 10

11 OPERATING HIGHLIGHTS Business Services Home Improvement Manufactured Housing Legacy Business Rail & Aviation Finance 11

12 Business Services Home Improvement Manufactured Housing 12

13 Home Improvement KEY HIGHLIGHTS Total originations for the quarter increased 79% over Q Total originations include new solar program launched in the first quarter EBITDA was $8.8 million in Q1 2018, +66% year over year As previously disclosed, revenue yields will vary by channel Originations under the solar program have a lower fee structure than our core business but add incremental profitability Operating margins impacted by increased expenses related to the development and roll-out of new origination partners Robust dealer growth continues o Adding ~170 new dealers per month Select Metrics (US$, MM) Q Q Originations Period end managed assets ,217.8 EBITDA Adjusted operating income before tax Guidance Announced December 14, 2017 (US$, MM) 2018 Total originations 1,365 Core originations 1,135 New channel originations 230 Managed assets (year-end) 1,860 Revenue 81 EBITDA 59 Adjusted operating income before tax 55 13

14 US$ Millions Q FINANCIAL RESULTS Home Improvement ORIGINATIONS (US$ Million's) YOY ORIGINATION GROWTH 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q % 120.3% 126.5% 116.8% % 56.9% 57.2% 31.7% % 54.2% 49.1% 54.9% % ORIGINATIONS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

15 Manufactured Housing KEY HIGHLIGHTS Total Q1 originations of $94 million Q1 Originations were impacted by: Federal Emergency Management Agency (FEMA) absorbed significant short-term industry capacity to support disaster recovery The Defense Production Act allows FEMA priority for manufacturer shipments to assist with recovery 1 This resulted in a larger than normal backlog of fully documented contractual loan agreements with down payments Without delays noted above originations would have been ~$105 million Backlog to return to normal in 2Q April results increased significantly vs last year Successfully launched floorplan program Drives more core loan originations & managed assets 77 manufacturers/dealers signed Quarter-end balance of $12 million Select Metrics (US$, MM) Q Q Originations Period end managed assets 1, ,003.8 EBITDA Adjusted operating income before tax Guidance Announced December 14, 2017 (US$, MM) 2018 Total originations 530 Managed assets (year-end) 2,310 Revenue 46 EBITDA 21 Adjusted operating income before tax

16 US$ Millions Q FINANCIAL RESULTS Manufactured Housing ORIGINATIONS (US$ Million's) YOY ORIGINATION GROWTH 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q % 34.1% 31.1% 13.6% % 33.5% 24.2% 24.2% % 11.3% 10.3% 15.0% % $50 $40 $30 $20 $10 $0 ORIGINATIONS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

17 Legacy Businesses Rail & Aviation Finance 17

18 Rail Highlights KEY HIGHLIGHTS Originations continue to be disciplined, with US$13 million added during Q1. No syndication income realized, in-line with expectations Future origination and syndication activity will be opportunistic and focus on portfolio optimization o Syndications expected to close in Q2 and no planned origination volume Net Rental Revenue yield consistent with Q4 and reflects change in portfolio composition Improved leasing fundamentals Income Statement (US$,000) Net rental revenue less interest expense & provision Q Q ,521 5,146 Syndication and other income 2, Operating expenses 1,483 1,418 Adjusted operating income before tax Key Ratios (1) 5,891 3,754 Q Q Originations (US$MM) Average earning assets (US$MM) Financial revenue yield 2 6.5% 4.7% Interest expense 1.9% 1.7% Net interest margin yield 4.6% 3.0% Operating expense ratio 0.9% 0.8% Pre-tax ROAA 3.7% 2.2% 1. Percent of average earning assets 2. Financial revenue yield includes 1.8% from syndications in Q

19 Aviation Highlights KEY HIGHLIGHTS No originations as wind-down progresses Average earning assets were $441 million down from $464 million in Q and $732 million in Q Adjusted operating income before taxes was $4.8 million, up 26% over Q due to a combination of higher income and lower operating expenses Subsequent to quarter end, we entered into a commercial arrangement to sell aircraft inventory ($35 million) Income Statement (US$,000) Interest income & rental revenue net less interest expense & provision Q Q ,676 6,001 Syndication and other income (484) (285) Operating expenses 1, Adjusted operating income before tax (1) 3,770 4,764 Key Ratios (1) Q Q Average earning assets (US$MM) Financial revenue yield 4.7% 5.2% Interest expense 0.1% Net interest margin yield 4.5% 5.2% Operating expense ratio 1.2% 0.9% Pre-tax ROAA 3.3% 4.3% 1. Percent of average earning assets 19

20 Consolidated Financial Summary 20

21 Q1 Consolidated Operating Highlights SUMMARY Total Originations were $349 million for the quarter After tax adjusted EPS of US$0.02 (~C$0.03) After tax adjusted EPS of US$0.01 excluding discontinued operations Tangible leverage of 0.53:1 Book value per share of $3.58 (C$4.61) 21

22 Balance Sheet KEY HIGHLIGHTS Total finance assets decreased compared to Q4 primarily due to an aircraft coming off lease and moving into inventory. Total managed assets at the end of Q1 reflects $1.2 billion in our Home Improvement segment, and $2.0 billion in our Manufactured Housing segment Balance Sheet ($,MM) Q Q Q Total assets 2, , ,095.5 Total finance assets (1) 2, , ,259.5 Total managed assets (2) 1, , ,221.5 Shareholders equity 1, , ,441.6 Tangible book equity (excluding preferred shares) 1, Tangible leverage ratio 0.87:1 1.05:1 0.53:1 1. Total finance assets = Net investment in finance receivables + Equipment under operating leases for continuing operations. 2. Reflects off-balance sheet portfolios of Service Finance and Triad. 22

23 Consolidated Income Statement KEY HIGHLIGHTS Origination and servicing revenue significantly increased in Q1 as a result of the first full quarter results of our Manufactured Housing segment. Interest and net rental revenue were relatively flat in Q1 while other revenue decreased due to lower syndications, particularly in our Rail Finance segment. Operating expenses increased due to a full quarter of Manufactured Housing results, higher costs in the Home Improvement segment as it builds out its revenue origination channels, and higher Corporate costs as M&A activity continues. Income Statement ($,000) Q Q Origination revenue 6,874 13,432 Servicing revenue 6,844 8,580 Interest income and net rental revenue 13,379 14,126 Other revenue 5,366 3,120 Interest expense and provision for credit loss 8,031 8,358 Operating expenses 13,460 21,771 Adjusted operating income before tax 10,972 9, Excludes share-based compensation 2. Percent of average earning assets 23

24 Operating Expenses KEY HIGHLIGHTS Operating Expenses ($, 000) Q Q Q Home Improvement segment expenses increased in Q1 as the business invests in growth of its origination channels. Manufactured Housing expenses reflect its first full quarter of operations in Q1 Higher corporate expenses reflect continued M&A activity and the fact that no transactions closed during the quarter. G&A expenses associated with successful M&A activity is recorded as business acquisition costs guidance reflects US$27 million in corporate operating expenses which are weighted towards Q1 to Q3 as we complete M&A execution Home Improvement 1,052 5,250 6,008 Manufactured Housing - - 6,055 Rail Finance 2,432 1,483 1,418 Aviation Finance 949 1, Corporate 4,389 5,305 7,338 Total operating expenses 8,822 13,460 21,771 Operating Expenses ($, 000) Q Q Q Base Corporate 4,389 4,911 5,250 M&A Transactions Did not close ,088 M&A Transactions Closed 4,106 2, ,495 7,673 7,588 24

25 Corporate Operating Expenses Q US$M Quarterly ~$7.5 US$M Annualized ~$30 Actions Executive compensation reductions; led by 20% reduction by CEO Eliminate M&A related costs Other SG&A reductions Q ~$6.25 ~$25 Actions Further executive compensation reductions Right-sizing corporate overhead Q ~$5.25 ~$21 In addition, ECN to reduce Senior line from $2.2B to $1.5B resulting in $2.4 savings in standby fees 25

26 MAKING CAPITAL WORK Questions 26